NECA Victoria

National Electrical and Communications Association (NECA) 2020-21 Victorian Government Pre-Budget Submission

(September 2020)

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Contents Foreword ............................................................................................................................ 2

About NECA ....................................................................................................................... 4

Impact of COVID-19 on the trades .................................................................................... 5

COVID-19 and the Australian Recession .................................................................... 5

Electrotechnology Industry feedback .............................................................................. 7

NECA COVID-19 Electrotechnology Industry Impact Survey ...................................... 7

1. Jump-starting Small Business ................................................................................. 9

1.1. SMEs to undertake Electrical Safety and Efficiency Health Checks and Upgrades for homes and businesses .................................................................. 9

1.2. SMEs to undertake Electrical safety and efficiency health check for local and state government buildings and assets ............................................................. 10

1.3. Introduce a Victorian HomeBuilder package ..................................................... 11

2. Unlocking Infrastructure and Super-charging Business ..................................... 12

2.1. Medium and Large Business to drive Nation Building ....................................... 12

3. Taxation and Regulatory System Reform ............................................................. 14

3.1. Reform the Australian Taxation System ............................................................ 14

3.2. Reform the Australian Regulatory System ........................................................ 15

3.3. New Victorian COVID-19 assistance ................................................................ 21

4. Energising the Future ............................................................................................. 26

4.1. Extend COVID-19 apprentice wage subsidies and new incentives for large business ............................................................................................................ 27

4.2. Support pre-Apprenticeship initiatives ............................................................... 28

4.3. Provide apprentice mentoring ........................................................................... 28

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Foreword The National Electrical and Communications Association (NECA) seeks to make a submission to the Victorian Government to inform and shape the state’s 2020-21 Budget. Our dynamic workforce is the cornerstone that connects and maintains essential services and utilities in our homes, businesses and infrastructure - this supports our everyday and overall way of life, encompassing electrical and communications services.

Coronavirus (COVID-19) is having an extraordinary, unprecedented economic, financial and social impact on the global economy. It has resulted in Australia entering its first recession in almost 30 years. Our industry has not been immune to the impact of COVID-19. This global health crisis has resulted in job losses, supply chain shortages, increased contractual and legal risks, industrial risks, reduced productivity (due to social distancing and increased health requirements), and a heightened level of uncertainty and increased caution among consumers. These have been exacerbated by longstanding policy and systemic issues that require urgent government intervention.

Whilst we commend the Victorian Government for critical stimulus initiatives and infrastructure projects announced, the COVID-19 recovery cannot be achieved through these alone. Additional longer-term projects would support a more sustainable COVID-safe future for Victoria. Given the benefits, size and contribution of our sector, it is critical that all levels of government introduce industry-based initiatives and funding streams that will help kick-start our economy. These include incentivised industry-centric opportunities and releasing a pipeline of large-scale projects; attracting and retaining a diverse workforce; improving electrical safety and energy efficiency; and reducing red tape and longstanding systemic issues.

NECA is closely monitoring and responding to the effects of the COVID-19 crisis as it unfolds. Our firm commitment is to continue to advocate on behalf of our members and the broader trades sector, and to provide timely information and assistance based on up-to-date advice from the federal and relevant state/territory government(s). We seek to work with industry, all levels of government and the community to achieve a successful COVID-19 safe economy and swift recovery.

Victoria is unique in that it has been the worst affected, by far, of any of Australia’s states and territories by the Coronavirus pandemic, both in terms of overall cases and the crushing impact successive lockdowns have inflicted on the Victorian state economy. It requires the most assistance of any of the states: partly to bolster its emergency services and disaster management resources, and partly to reopen its economy and kickstart growth. These outcomes are critical to both Victoria’s interests and to the Australian economy as a whole.

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NECA contends our evidence-based, industry driven recommendations are critical for Victoria and Australia to navigate a way out of the COVID-19 induced recession. Importantly, the recovery must be led by local businesses, working within their local areas to rebuild and restore their local economies. This will foster long-term resilience, productivity and competitiveness.

To this end, I strongly urge the Victorian Government to implement our recommendations as it enacts its 2020-21 Budget. We appreciate the opportunity to engage and contribute to the budget process and thank the Victorian Government for this.

I would welcome an opportunity to engage with the government further on this submission.

Yours faithfully

Pawel Podolski Executive Director National Electrical and Communications Association – Victorian Branch

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About NECA The National Electrical and Communications Association (NECA) is the peak industry body for Australia’s electrical and communications contracting industry, which employs almost 170,000 workers1 and delivers an annual turnover in excess of $23 billion2. We represent the interests of some 5,500 electrical and communications contracting businesses across all Australian states and territories. Our contractors engage in a range of essential work including the design, maintenance, installation and repair of electrical and electronic equipment, building and construction, mining, air-conditioning and refrigeration, manufacturing, communications and renewables sectors.

NECA has been advocating for, and on behalf of, the electrotechnology industry for over 100 years. We aim to help our members and the wider industry to operate and manage their business more effectively and efficiently whilst representing their interests to federal, state and territory governments, regulators, and principal industry bodies such as the Australian Chamber of Commerce and Industry (ACCI) and Standards Australia.

NECA is strongly committed to supporting the next generation of electrical and communications contractors. Working with our Registered Training Organisations (RTOs) and Group Training Organisations (GTOs), NECA provides employment and ongoing skills development for approximately 4,800 apprentices across Australia. The majority of these apprentices get the opportunity to gain work experience with NECA’s members either directly or via our group schemes. The success of our programs speaks for itself - we proudly boast 90% completion rates across our courses, and approximately one in three electrical apprentices in Australia is a NECA apprentice.

Our approach to attracting and supporting entrants to our industry is through a holistic, progressive and high-quality range of industry relevant programs and initiatives including our long-standing scholarship program, NECA Foundation, and the Women in Electrical Trades Roadmap. We proactively seek to ensure a diverse workforce, supporting and attracting more women, indigenous and mature aged apprentices, and promoting trade career pathways for both school students and school-leavers. In addition to these initiatives, we also manage and promote the industry-wide NECA Annual Excellence Awards, designed to acknowledge and celebrate achievements and highly distinguished electrotechnology projects, and our Apprentice Awards, which recognise future leaders of our industry.

1 Australian Government ‘Job Outlook’. (July 2020) (Telecommunications Trades Workers)

https://joboutlook.gov.au/Occupation?search=alpha&code=3424 and (Electricians) https://joboutlook.gov.au/Occupation?search=alpha&code=3411

2 Ibis World ‘Electrical services in Australia Industry Statistics (May 2020) https://www.ibisworld.com/au/industry/electrical-services/325/

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Impact of COVID-19 on the trades COVID-19 and the Australian Recession With the rapid outbreak of COVID-19 we have witnessed the Australian economy contracting by 0.3% during the March 2020 quarter, and a further 7.0% in the following June quarter. This has resulted in Australia’s first recession in almost 30 years3 and impacted every aspect of our way of life.

According to the ABS, COVID-19 has resulted in a significant decline in, and contraction of, Australia’s GDP. This has been driven primarily by a 1.1% fall in household consumption across the country as consumers have become increasingly cautious around expenditure prompted by employment uncertainty, ‘stand-downs,’ and job loss/redundancies. It should be noted that falls in household consumption were last observed at this rate during the global financial crisis.

The length of time it will take for the Australian and local economies to recover from COVID-19 is unknown. As business awakes from hibernation and adapts to a COVID-safe economy, it is forecast that Australia will continue to experience negative/flat GDP growth for some time. Given Australia’s relatively strong fiscal position at the outset of the pandemic, it can confidently work towards a swift COVID-19 recovery compared to many parts of the world that have not been as successful at containing the virus.

The value of construction work undertaken in Victoria is over $57 billion per annum, representing almost 13% of Victoria’s Gross State Product (GSP) and accounting for over 45% of its tax revenue. Construction employs nearly one in ten workers in Victoria, which translates to approximately 300,000 people in full and part-time positions in more than 200,000 businesses. As the pandemic has progressed in Victoria, the building, construction and development industry has recorded job losses of approximately 8,300 people, or a 3% decline from the first quarter of 2020. Residential building approvals declined by nearly 15% in the June quarter, with the greatest falls in multi-unit approvals. While forecasts still predict a reasonable pipeline of activity across our industry, it is expected to reduce by over $6 billion, with more than $2 billion in tax revenue lost to the state.

COVID-19-specific challenges in the electrical services industry include disruptions in the supply chain of imported electrical components and equipment, as well as the supply of skilled labour. Electrical contractors are also being affected by the requirement to change

3 ABS 5206.0 Australian National Accounts: National Income, Expenditure and Product, March 2020

https://www.abs.gov.au/ausstats/abs@.nsf/mf/5206.0

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work practices to comply with social distancing regulations and the use of personal protective equipment (PPE).

Industry looks toward government for leadership as it begins to restart the economy. It is critical the recovery process is comprehensive and takes on a dual functionality. In short, we call for a classical Keynesian approach by way of economic stimulus coupled with targeted structural reform.

NECA advocates for increased government expenditure and lower taxes to stimulate demand and pull the economy out of recession. Given record low interest rates, government has an historic opportunity to “borrow to build.” In short, it must ensure measures and initiatives are in place that stimulate activity and mobilise the market, which will in turn assist Australia to recover from what is being described as the ‘coronacession.’

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Electrotechnology Industry feedback NECA has been proactively engaging with members and the broader industry to understand the impact of COVID-19 on our sector.

A summary of the research findings is outlined below:

NECA COVID-19 Electrotechnology Industry Impact Survey To gain an in-depth understanding of the current landscape, NECA surveyed 470 representatives of the electrical and communications industry across Australia, including Victoria, in May 2020 on their experience operating during COVID-194.

The results of the survey have informed the evidence-based solutions proposed by NECA to drive nationwide economic recovery. Businesses that responded represent more than 10,000 employees across all states and territories, as well as remote, regional and metropolitan Australia.

Despite the quiet optimism that businesses will eventually recover from COVID-19, the research paints a sobering picture, with very few opportunities on the horizon and the current pipeline of work expected to dry up in or around September 2020.

Some key findings from NECA’s COVID-19 Industry Impact Survey are:

• Nationally, 93.8% of businesses said COVID-19 is impacting their business, with most experiencing a significant or moderate impact;

• almost 50% of businesses nationally have reduced employee work hours to mitigate the impact of COVID-19;

• 80% of all businesses surveyed have seen a negative financial impact as a result of COVID-19, with one in five experiencing a reduction in revenue of more than 50%;

• all areas of the electrotechnology industry have been impacted by COVID-19;

• businesses are concerned about the future pipeline of work, with more than 50% of new projects and installations impacted and at least 80% of work underway due to end within six months;

• opportunities for future work nationally are slim, with 70% fewer tender opportunities compared to the same time last year;

• a majority of respondents are somewhat confident their business will recover, but cite

4 National Electrical and Communications Association, 2020. ‘Industry Survey and Policy Implications’

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government support as critical to industry recovery;

• almost 60% of businesses nationally have applied for government assistance;

• 70% of respondents believe investment in infrastructure and construction is required in order to stimulate the economy and that further, any stimulus must be supported by regulatory reform;

• approximately 40% of respondents agree temporary amendments to the Fair Work Act 2009 are critical to provide flexibility in Enterprise Agreements in response to COVID-19;

• 36.2% of respondents believe extending apprentice subsidies to all businesses (irrespective of size), coupled with the provision of adult apprentice wage subsidies (27.9%), will assist in the COVID-19 recovery;

• regulatory reform is key to moving forward, with 28.9% of respondents seeking adoption of a uniform approach to security of payment laws; and

• other ways respondents believe government can support business include introduction of unfair contracts legislation (24.3%); introduction of a moratorium on liquidated damages (21.3%); and flexibility in relation to the extension of time provisions (14.7%).

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1. Jump-starting Small Business Small business and family owned enterprises (SMEs) are the lifeblood of the national economy, and dominate the electrical and communications contracting industry. Approximately 80% of businesses within the electrotechnology industry employ less than 20 staff, and overall trends indicate the number of small businesses across the nation are increasing.

The COVID-19 crisis is having a devastating impact. SME members are citing the government’s mandatory lockdowns, restrictions and the resulting economic downturn to be contributing factors. A sizeable majority of respondents to the NECA survey reported COVID-19 having an impact on their business, with most experiencing a moderate or significant impact on their business. SMEs on average are experiencing a moderate impact. Diminished work opportunities are due to heightened uncertainty in the marketplace and the reluctance of cautious homeowners and businesses impacted by social distancing restrictions and/or consumer sentiment.

The Victorian Government, in its efforts to return Australia to its former economic position, must think and act locally: that is, supporting local business and connecting these with local projects to stimulate local economies, resilience and growth. It is critical the recovery efforts be led by local SMEs, working within their local areas to rebuild and restore their local economies. This will foster long-term resilience, productivity and competitiveness.

1.1. SMEs to undertake Electrical Safety and Efficiency Health Checks and Upgrades for homes and businesses

Ageing residential and commercial buildings present serious challenges and safety risks to property owners and/or renters, as existing electrical wiring (including associated equipment and gas appliances) may be non-compliant with current industry standards under the Australian Building Code and/or degrading and/or deteriorating, requiring remedial action. In some instances, building safety is actively further compromised by COVID-19, as building systems can be underutilised or left dormant, giving rise to potential hazards such as legionella bacteria.

It is our view the Victorian Government should incentivise households and businesses to engage local electrical and communication SMEs, supporting and connecting local tradies to local jobs, which will stimulate and jump-start the local economy.

We propose a ‘dollar-for-dollar’ government grant scheme to be available through the 2020-21 financial year. This includes:

• a new ‘dollar-for-dollar’ grant scheme to households of up to $3,000 to undertake electrical, plumbing and gas safety and efficiency upgrades; and

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• a new ‘dollar-for-dollar’ grant scheme to businesses of up to $5,000 to undertake electrical safety and energy efficiency upgrades to commercial property.

In line with NECA’s continuous commitment to consumer and building safety, we recommend the ongoing rollout of safety switches (RCDs) wherever they are not already in use.

1.2. SMEs to undertake Electrical safety and efficiency health check for local and state government buildings and assets

In response to COVID-19, extensive parts of the government’s workforce have been redeployed from their buildings/facilities/assets to home-based offices. Community interaction with government employees in public facilities has been redirected to online services, with physical activities deferred to recommence at a later date. In turn, many of these buildings/facilities/assets are either vacant or operating at a very low capacity. With lower patronage and activity, these circumstances have created a unique opportunity to review the risks/condition of buildings/facilities/assets, and in turn improve government-owned assets, including across local government, utilising local community skills and capacity to ensure the greatest take-up across all metropolitan, regional and remote areas.

This should also extend to state government assets, such as schools.

A similar initiative should be established whereby grants are available within a ‘dollar-for-dollar’ grant scheme for local government to undertake electrical and efficiency health checks and associated remediation/upgrades. This work should be undertaken by local SMEs to ensure local tradespeople are prioritised to boost the local economy.

It is our view that all levels of government should commit to a program of community capacity building within all Local Government Areas (LGAs): that local tradespeople are engaged to improve, maintain and build local assets including social housing, asset maintenance works, capital works programs, security upgrades, lighting upgrades and small scale solar.

Ancillary potential opportunity to reduce insurance premiums

We argue that these proposed health checks and likely rectifications will improve the safety and efficiency of a building and in turn, when insurance premiums on buildings are calculated, actuaries could factor in these improvements and incentivise reduced risks.

Therefore, a premium discount would be applied to owners who continue to ensure that their property is safe and fully compliant. This added benefit to property owners is particularly valuable to those impacted by COVID-19 through job losses and stand-downs.

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Suggested Registration System – Supporting local SMEs

To ensure the safety and efficiency initiatives proposed are undertaken by local tradespeople in their local community, we suggest the government introduce a registration system, modelled on the recent Australian Bushfire Recovery. This will collect information to best match local tradespeople with local projects including residential, commercial and government projects. This would be particularly suited to regional and remote areas to ensure local tradespeople are prioritised to do local work to boost the local economy.

1.3. Introduce a Victorian HomeBuilder package We welcome the federal government’s recognition of the critical role the construction industry will play in rebuilding the Australian economy by introducing the HomeBuilder package (HomeBuilder). HomeBuilder provides eligible homeowners (including first home buyers) with a grant of $25,000 to build a new home or substantially renovate an existing home, and is conditional on spending at least $150,000 in total. HomeBuilder is available to homeowners who commence new home builds and renovations in the 2020 calendar year5. Whilst we see this initiative as a positive first step, we are of the view the Victorian Government should introduce a similar HomeBuilder package for projects below $150,000 to stimulate the local market and smaller projects. We assert the timeframe should be at least 18 months (i.e. until at least the end of 2021) in order to provide homeowners with sufficient time to research the best available options, and industry with sufficient to implement them.

Recommendations

• Introduce a ‘dollar-for-dollar’ grant scheme for households of up to $3,000 to undertake electrical safety and efficiency upgrades to homes;

• Introduce a ‘dollar-for-dollar’ grant scheme for businesses of up to $5,000 to undertake electrical safety and efficiency upgrades to commercial property;

• In line with NECA’s continuous commitment to consumer and building safety, we recommend the ongoing rollout of safety switches (RCDs) wherever they are not already in use; and

• Commit to a program of community capacity building within all Local Government Areas (LGAs): that local tradespeople are engaged to remediate, improve, and upgrade local buildings and assets; and

• Introduce a Victorian HomeBuilder package to encourage stronger take-up and greater economic activity of smaller projects.

5 HomeBuilder Economic response to the Coronavirus – Fact Sheet. 4 June 2020. https://treasury.gov.au/sites/default/files/2020-

06/Fact_sheet_HomeBuilder.pdf

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2. Unlocking Infrastructure and Super-charging Business

Medium to large scale businesses offer the scale, capacity and capabilities to help deliver the critical infrastructure required to meet current and future demographic projections, comprising an additional five million people by 2030, whilst stimulating our economy to help in the recovery from the impact of COVID-19.

Infrastructure in Australia’s major cities is under increasing strain and requires significant government investment to reduce congestion, improve liveability and increase productivity. Filling the growing infrastructure gap requires careful market-focused, evidence-based decision making and the scale and capacity offered by medium to large businesses. It is critical that all levels of government identify, prioritise and commence ‘shovel-ready’ major infrastructure and renewal opportunities to restore the economy, and these are most suited to medium and large-scale businesses.

Medium to large scale contracting businesses typically work on large-scale and high yielding building and construction projects. They typically have larger workforces and are more likely to recruit the next generation of tradespeople. Generally, a larger development project will be sustained over a longer period, and will generate broad economic benefits to all areas of the economy.

2.1. Medium and Large Business to drive Nation Building

NECA proposes that all levels of government unlock and fast track medium to large scale renewal and infrastructure projects to significantly boost jobs in the building and construction sector, productivity, and investment across Victoria. This will also require significant systemic reform of longstanding policy issues including taxation reform, reducing red tape, removing institutional roadblocks such as simplifying and streamlining planning systems, improving government coordination and increasing collaboration with financial institutions.

To deliver value for money, the Victorian Government should be looking to leverage private sector infrastructure investment. Wherever possible, the private sector should be engaged to finance, construct, operate and maintain infrastructure assets. Where this creates issues with local monopolies, a light-handed approach to regulation should be applied. Any regulation should aim to maximise efficiency and competition whilst diminishing the exercise of market power.

We advocate for all levels of government to identify, prioritise and commence ‘shovel-ready’ major infrastructure and renewal opportunities to restore the economy, and these are most suited towards medium and large-scale businesses.

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NECA also strongly believes state and federal governments should investigate ways in which manufacturing opportunities can be retained in Australia rather than being outsourced to offshore suppliers. Utilising direct subsidies, tax concessions and/or other incentives, head contractors could be encouraged to have these cables and components manufactured locally rather than in China, where steel fabrication is cheaper. More robust local manufacturing capacity would give certainty to industry in terms of supply lead times, create employment opportunities, and benefit GDP growth in the economy as a whole.

Giving increased weight to local product when considering tender responses is another way governments can support local employment, and safeguard continuity of supply given the risks to international trade stemming from the COVID-19 event.

Recommendations

• Unlock and fast track a pipeline of major infrastructure ‘shovel-ready’ projects for medium to large businesses to stimulate the economy e.g. government construction projects, large scale renewable energy generation, local government works across metropolitan, regional and remote Australia;

• Support innovative strategies and emerging technologies to encourage new ways to achieve energy efficiency; and

• Investigate and implement financial incentives to support local manufacturing, in concert with the federal government, to facilitate certainty of supply for business and to stimulate economic growth.

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3. Taxation and Regulatory System Reform COVID-19 has exposed and amplified a number of longstanding systemic regulatory and taxation issues. NECA is of the view that our outdated and inefficient regulatory and taxation systems need urgent strategic, evidence-based and industry-informed reform. A collaborative approach to these longstanding systemic issues will best inform and lead Australia to a swift and sustainable economic recovery.

It is vital that in recovering from COVID-19, the Victorian Government addresses inequitable conditions, excessive red-tape, and ensures a more competitive, resilient and productive marketplace. Moreover, regulatory and taxation systems should be self-sufficient to generate revenue, incentivise opportunities for industry, foster a diverse workforce, and look for new opportunities for economic growth. Policy must mitigate the disruption already caused to the building and construction sector, encouraging consumer confidence and investment.

We call on the Victorian Government to begin the process of comprehensive reform with the aim of delivering a structurally stronger, fairer and more efficient regulatory and tax systems as outlined in the following sections of this submission.

3.1. Reform the Australian Taxation System

Improving Australia’s tax system will enable Australia to maximise opportunities for lifting economic growth over the long term and strengthening the economy’s recovery from the COVID-19 crisis. Tax reform will require the Commonwealth, state and territory governments to work collaboratively to agree and implement systematic policy responses that remove impediments and increase incentives for individuals and businesses to engage in economic activity, seize opportunities, and be innovative.

Achieving comprehensive tax reform that supports federal and state budgets over the long term, while addressing distributional impacts and promoting economic growth, will take time, but this should not prevent all levels of government committing to the challenge of tax reform. Australian businesses need the tax system to deliver the right mix of incentives that will make them globally competitive, stimulate investment in research and development, and support them in becoming more efficient and productive. The impact of COVID-19 cannot be ignored, and now is the time to address the systemic issues to ensure business is able to adapt to the new global economic landscape.

It is imperative the government immediately reduces the impact of inefficient taxes that will impede both economic and employment growth during the recovery and beyond. NECA has previously put forward to the government comments and suggestions as part of the ‘Australian Future Tax System Review’ in 2008 (Henry Review), and subsequent Tax Reform White Paper process.

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NECA also believes the national savings pool (i.e. compulsory superannuation deposits) could be better utilised to stimulate the economy which should, in turn, generate a financial return on the use of these monies. Consideration could also be given to permitting the use of these monies to assist first time home buyers, under tightly-defined conditions, to acquire an owner-occupied residence.

3.2. Reform the Australian Regulatory System 3.2.1 Introduce a national occupational licensing regime

NECA has called on the Federal Government to introduce a single national occupational licensing scheme for electrical subcontractors, and seeks the endorsement of the Victorian Government in this regard. The implementation of such a scheme must not dilute safety standards, technical expertise or adequate insurance requirements.

The distinction must be drawn between workers’ licences (as individual tradespeople are already able to work in different jurisdictions) and contractor licensing (which relates to the contracting business itself, and which under current arrangements imposes differential compliance obligations from state to state such as training for a nominated person, registration costs, and so forth).

The ability and freedom for contractors to work freely across Australia is more important than ever in light of recovery from COVID-19. This approach will result in a harmonisation and reduction in cost and administrative red-tape to business, which will allow people to work on their business at this important time. For this to occur efficiently, effectively and safely, a national occupational licence system needs to be implemented.

Whilst individual state and territory licensing agreements have not stopped this from occurring, there is a general lack of mutual recognition of cross-jurisdictional licences, and this has acted as an entry barrier for many businesses trying to geographically diversify their operations. In a COVID-safe economy it is critical to support business and mobilise workforces. Being able to deploy and utilise skills and trades anywhere across Australia would continue to assist the industry to be competitive, agile and productive.

We support the creation of a single national occupational licensing scheme for our contractors. However, its implementation must not dilute safety standards, technical expertise or adequate insurance requirements. We also support mutual recognition licensing reform across Australia, and encourages all states and territories to continue discussions in order to adopt these reforms.

3.2.2 Security of Payments for contractors

As a finishing trade, electrical contractors are involved in the latter stages of the building and construction cycle. Further, the equipment and labour used in modern buildings is

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often highly sophisticated and expensive. In the event a builder falls into receivership, contractors can be at a disadvantage in terms of being recompensed compared to all other trades who contribute and have been fully recompensed at an earlier stage of the project.

The current system of payment security penalises sub-contractors by effectively rendering them de-facto underwriters to unscrupulous or inefficient head/principal contractors. Of all sub-contractors, electrical contractors provide the highest value input by way of fixtures, fittings and labour towards the latter stages of the construction cycle.

Concerns about the security of payments are further exacerbated by the fact relevant Building and Construction Industry Security of Payment legislation is facilitated by state/territory governments, and determined by the state/territory where construction work is carried out. Building and Construction Industry Security of Payment legislation was first adopted by New South Wales in 1999, followed by Victoria, Queensland, Western Australia and the Northern Territory, and lastly, in 2009, the Australian Capital Territory, South Australia and Tasmania.

In light of COVID-19 and the risks associated with the cessation of arrangements for businesses to operate insolvent, these issues are highly amplified and of significant concern to our members and the industry. All levels of government must urgently institute arrangements that will protect the fair payment of contractors who are taking significant risks to run their business equitably during this time.

NECA calls for the harmonisation of the creditor line process across Australia so contractors are not disadvantaged by the potential collapse of a construction company.

Introduce Statutory Trust Model

One of the most serious ongoing issues facing our industry, and in particular SMEs, is the behaviour of unscrupulous principal contractors that abuse their power and size to enforce detrimental and unfair contracts on smaller parties on a 'take it or leave it' basis. Sub-contractors, which tend to be smaller businesses, often do not have the capacity to fairly and equitably negotiate contracts with larger principal contractors. This exposes SMEs in our industry to the potential to be taken advantage of, or entering adverse and compromising contracts.

In light of COVID-19, the recession and imminent cessation of provisions allowing companies to operate from an insolvent position, we have significant concerns about the risk and impact to our respective industries. Without adequate provision and security for contractors in the form of a Trust, the very real risk exists that the industry could be detrimentally impacted, which would have broad reaching impacts.

NECA calls upon the Victorian Government to immediately implement the following Murray Review recommendations in relation to Statutory Trusts:

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• Recommendation 85: A deemed statutory trust model should apply to all parts of the contractual payment chain for construction projects over $1 million. The deemed statutory trust model outlined in the Collins Inquiry provides a suitable basis.

• Recommendation 86: The Australian Government should take a lead role in working with states, territories and key industry stakeholders towards the establishment of a nationally consistent deemed statutory trust model. The establishment and implementation of such a model should be accompanied by a program of industry-wide education and training.

3.2.3 Stamp out non-conforming building products

Introduce the Senate Economics Reference Committee Inquiry into Non-conforming Building Products – Government response to the final report

NECA firmly believes that governments across Australia must do more to ensure non-conforming products are removed from the building and construction sectors. We believe all levels of government have a responsibility to regularly and vigorously undertake random product auditing, and bolster efforts around non-compliant product enforcement. It is imperative that government departments actively and effectively communicate with each other and all relevant stakeholders to remove and protect the market from non-conforming products and implement an effective batch-testing regime.

The Australian Senate Economics References Committee recently released its Final Report: Non-conforming building products – the need for a coherent and robust regulatory regime (April 2020), and outlined a total of 13 recommendations to be pursued by the federal government.

NECA supports strongly encourages the federal government to immediately fast-track the recommendations within the Final Report, and seeks the Victorian Government’s support to advocate for these recommendations to be implemented. NECA provides the following comment in relation to the report:

• improve engagement between government and industry around non-conforming building products, and establish a joint forum;

• confidential reporting processes to assist with the identification and management of non-conforming products in the interest of electrical safety, and calls for this to be implemented immediately;

• greater clarity as to which level of government and/or department is responsible for the oversight and monitoring of imported electrical, plumbing and gas-fitting products, including the sale of imported electrical products;

• boost government commitments and resources to be more proactive in relation to product enforcement activities and larger product random batch testing;

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• ensure any product that requires a licensed electrician for installation can only be sold through the trade desk of a retail outlet and/or hardware store;

• broaden and boost Customs powers to enable random compliance audits of imported electrical products, and the ability to impound non-compliant electrical products;

• facilitate discussion in relation to product recall insurance; and

• instigate and enforce strong financial penalties for any persons found to have imported and sold non-compliant building products.

3.2.4 Introduce a national Electrical Equipment Safety System (EESS) Database for the Electrotechnology Industry

Unsafe and/or non-compliant equipment is costly for businesses, consumers and governments. A key concern for the electrotechnology industry is the lack of government enforcement, at all levels, against distributors of non-compliant products to ensure quality and measurement of performance to Australian standards. In recent years, there have been countless instances of avoidable building defects and product failures that have led to loss of life and damage to property. Despite these incidents, there have been extensive delays in developing and implementing policies to address the presence of non-compliant products in the building industry in Australia. Of greater concern is that government has not sufficiently and appropriately funded the policing of non-conforming products.

Given the size of the building and construction sector, and the extent of economic activity in infrastructure and development, it is critical that safeguards are in place to ensure damages do not flow to the industry or consumers as a result of non-compliant building products.

In 2013, NECA in conjunction with Voltimum, developed and instigated the Does it Comply? campaign. This campaign focuses on the removal of unsafe and non-compliant products across the electrical sector. Whilst we acknowledge the survey was undertaken in 2013 however, it is of great concern to NECA is that there has been no subsequent fundamental shift in the legislative or regulatory environment surrounding non-compliant building products in this country. Therefore, the risks that non-compliant building products pose remains effectively the same, or worse.

As part of the campaign, NECA and Voltimum conducted an industry survey to gain understanding of the seriousness of the issue of non-compliant product and attitudes across the industry towards this problem. The survey results indicated that over 75% of respondents had seen the installation or sale of non-compliant electrical product in the Australian market. Does it Comply? enabled the creation of the Electrical Industry Charter, an alliance of major industry partners which are committed to selling and using only genuine, compliant products.

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The recall of Infinity and Olsent branded electrical cables installed in houses and buildings across Australia between 2010 and 2013 was initially expected to cost businesses around $80 million. However, more recently released estimates from the ACCC have revised this figure to approximately $100 million. Further, approximately 20,000 properties are said to have been affected with Infinity and Olsent branded cables, according to the ACCC. These product failures have not just been limited to the Infinity and Olsent incidents.

Another concern for our sector is the lack of testing and checking of imported products to ensure their safety and conformance. Whilst random batch testing of electrical products does occur, these checks are too infrequent and fail to ensure product quality, measurement and adherence to Australian Standards. The concerns of our sector are mirrored across other sectors such as glass and steel manufacturing, where counterfeit products have been labelled as meeting Australian standards but later found to be a counterfeit product of poorer durability and safety.

NECA advocates that the federal government introduce a national Electrical Equipment Safety System (EESS) Database to combat the use of non-compliant electrical products, and for this to be supported by the Victorian Government. EESS would provide a database of information to all industry stakeholders. It would record all registration details of responsible suppliers of electrical equipment in Australia and New Zealand. This would allow for electrical equipment to be easily traced to the supplier and its legal supply in Australia and New Zealand to be verified.

3.2.7 Address Unfair Contract Terms for SMEs

SMEs are the lifeblood of the electrical and communications contracting industry; over 79% of the businesses within our industry employ up to 25 staff6. These businesses generate the vast majority of their work as sub-contractors. The relationship between sub-contractor and principal contractors is fundamentally imbalanced for the following reasons:

• sub-contracting businesses are generally characterised as SMEs, offering specialised skillsets and capabilities. This is in direct contrast to principal contractors, which are mostly characterised as much larger, diverse and well-resourced organisations. Given the very polarised nature, scale and capabilities of these entities, sub-contractors are generally disproportionally disadvantaged in their ability to equitably participate and negotiate fair contracts;

• in general, the relationship between principal and sub-contractors is such that dependency exists by the sub-contractor on the principal contractor. This relationship also confers a power imbalance. Contractors are aware of this dependency and

6 NECA 2019 Industry Market Monitor https://neca.asn.au/content/market-monitor-2019-0

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imbalance. We have concern that this imbalance is often exploited by unscrupulous principal contractors; and

• further to the size and power yielded by principal contractors, there is only a very small pool of them. This means there is limited competition in the area of principal contracting, resulting in sub-contractors regularly and consistently engaging with the same small group of principal contractors.

One of the most serious ongoing issues facing SMEs is that unscrupulous principal contractors abuse their power and size to enforce detrimental and unfair contracts on smaller parties on a ‘take it or leave it’ basis. Sub-contractors, which tend to be smaller businesses, often do not have the capacity to fairly and equitably negotiate contracts with larger principal contracts. This exposes SMEs in our industry to the potential to be taken advantage of, or to enter into adverse and compromising contracts.

These conditions result in the following adverse, inequitable outcomes:

• reinforcing the ongoing imbalance between principal contractors and sub-contractors in contract negotiations, given the inherent imbalance due to the power, scale and access to resources of larger organisations;

• deterring new entrants and existing tradespeople from owning and operating SMEs, which has a knock-on impact to the depleted and declining skills workforce;

• penalising sub-contractors by effectively rendering them de-facto underwriters to unscrupulous or inefficient principal contractors;

• compromising quality assurance and the timely delivery of much needed new development, which directly impacts end consumers;

• legal disputes and bankruptcies across trade industries; and

• broader economic impacts at both a local and national level, which are detrimental to the overall competitiveness, productivity and sustainability of our industry in Australia.

Unscrupulous principal contractors will often seek to shift and allocate risks and costs associated with projects e.g. overruns/delays, design variations and changes to materials/finishes, down the contract hierarchy and onto sub-contractors through, and embedded within, an inherently unfair contract.

Due to the imbalanced size, power and capacity between principal contractors and sub-contractors as outlined in this submission, sub-contractors have a compromised ability to mitigate the transfer of these risks, or the capacity to control or manage the risks once they have been transferred. This again can have dire financial consequences for a small business, and potentially result in insolvency. Arrangements need to be designed and implemented to address the transfer of risk through a building contract from a principal contractor to a sub-contractor.

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Under current law, one of the requirements for a contract to be considered a small business contract is that at least one party employs fewer than 20 persons at the time the contract is entered into7. NECA’s experience indicates that businesses are much larger, and that the definition and size of a business should be amended from 20 to 100 persons employed, reflecting a more accurate picture of the business size employed to work on larger construction projects across many jurisdictions.

This said, NECA is of the view ensuring mutually beneficial arrangements are in place for all sizes of business is critical, and that additional new provisions are enacted to ensure a more balanced and transparent system, and to create a level playing field for all sizes of business. The government must ensure any such arrangements do not lead to excessive and unnecessary additional red tape that will impact the productivity and efficiency of large business, with costs passed on to SMEs.

Further, NECA argues the threshold on upfront price payable on the contract should be increased from $300,000 to $3,000,000 for contracts of 12 months or less, and from $1,000,000 to $9,000,000 for contracts longer than 12 months. These thresholds reflect a far more realistic value on the price of contracts across the sector, particularly for medium scale enterprises with a larger number of staff involved, with more time consuming and complex project scales.

3.3. New Victorian COVID-19 assistance 3.3.1 Support and protect supply chains

COVID-19 has highlighted the high level of dependence Australian supply-chains have on international manufacturing and production. The primary issue highlighted by COVID-19 is how insufficient our national capacity and capability is within the manufacturing sector, and the consequent risk this poses to our sovereignty. There is an opportunity to leverage existing sectoral and local clusters to increase scalability of domestic manufacturing and facilitate the development of high-performing and cooperative clusters through incentive packages to address supply chain issues.

Our industry has been impacted by availability of key tools and equipment necessary to undertake essential work. It is critical the Victorian Government puts systems, processes and practices in place that protect supply chains to ensure business is resilient and self-sustaining into the future. This can be done by bolstering the manufacturing sector, which has significant potential to grow the economy and create jobs.

7 Enhancement of Unfair Contract Term Protections https://ris.pmc.gov.au/2019/12/20/enhancements-unfair-contract-term-protections

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We encourage the government to look at new, additional and sustainable manufacturing supplies and to incentivise onshore manufacturing to ensure supply chain certainty.

3.3.2 Moratorium on Liquidated Damages provisions

We urge the Victorian Government to support our advocacy efforts to the federal government to introduce a moratorium on Liquidated Damages (LD) provisions within construction contracts to help prevent a potentially catastrophic impact to Australia’s building and construction sector as a result of COVID-19. On many large projects, the risk associated with a delay is imposed on sub-contractors who enter one-sided contracts as they have little or no bargaining power when it comes to amending the contractual terms.

In advocating for such a moratorium we should note that affected members to date have carried the cost of reduced productivity, the cost of keeping sites open with PPE, additional amenities etc, and do not seek recovery of these: just relief from damages.

As a result of the risk of delays being passed onto sub-contractors, sub-contractors have little or no entitlement to claim an extension of time for these delays. This is unfair and unreasonable. Given the current economic and social landscape associated with COVID-19, the unfair position that sub-contractors find themselves has been further exacerbated as they will be severely impeded by their ability to undertake the works prescribed by the construction contract. This has the potential to trigger a number of LD claims which will be devastating for the building and construction industry. It is no exaggeration that the potential collapse of the building and construction industry is foreseeable unless government intervention is forthcoming.

We urgently seek the support of all levels of government for the introduction of a moratorium on LD provisions within construction contracts, and for this to apply for at least the term of Government Staged Restrictions.

3.3.3 Flexibility for the Extension of Time Provisions

NECA has received numerous enquiries from members that indicate the social distancing guidelines are making current site conditions and productivity goals unattainable. Similarly, closing sites down would have a catastrophic impact across the sector and the broader economy which is something NECA is not advocating for. Extension of Time (EOT) provisions/clauses are often written out of contracts, or changed by the government or Tier 1 or Tier 2 construction companies, leaving sub-contractors further down the line exposed to the substantial risk of delays caused by the current pandemic where government construction projects are concerned.

Contractors are not receiving the appropriate EOTs, which could result in contractors being served with LD claims. This leaves contractors not being paid for real time-related costs for delays, leaving the contractor exposed to LD on the project, as a result of

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COVID-19. It is critical the government respond to this issue, in the first instance by retrospectively inserting provisions into its own contracts, that will provide an industry best practice guideline for other areas of the sector to follow.

Moreover, larger government contracts have onerous general damages and indemnity provisions. These will have significant detrimental consequences to the marketplace, as larger business enterprises are the employers of a number of dependent contractors and deliver high yielding projects including government projects. Onerous general damages and indemnity provisions need to be restricted or amended.

We ask the Victorian Government to develop contract guidelines which require all government building and construction contracts to contain EOT provisions (and other related clauses) that protect sub-contractors impacted (with appropriate economic protection to contractors) as a result of COVID-19. These provisions should cascade down the subcontractor chain so all entities along the chain benefit.

3.3.4 Temporary relief to trading insolvency provisions under the Corporations Act 2001

The federal government’s COVID-19 response package has provided directors with temporary relief from personal liability if a company is trading insolvent. These changes, introduced into the Corporations Act 2001, encourage businesses to keep trading even if they have been adversely affected by the economic shutdown associated with COVID-19.

Effectively, these provisions allow for directors to incur debt without contravening the duty to prevent insolvent trading (even where there are grounds to suspect insolvency) where the debt was incurred:

• in the ordinary course of the business;

• during the six-month period commencing 25 March 2020 (or any period extended by the regulations); and

• before any appointment of an administrator, or liquidator, of the company during that period.

These provisions are also understood to extend to holding companies. Moreover, debtors can now take up to six months instead of 21 days to respond to a bankruptcy notice.

Whilst these provisions are considered extraordinary, have merit in their intent and allow businesses greater flexibility and the ability to continue to trade during a period of lost revenue, delays in cashflow and retain staff, significant concerns are raised about the arrangements when these provisions cease, and how this will impact the broader supply chain and system once these sunset provisions expire.

We note at this point that credit insurers have significantly tightened the provision of cover on new clients, and removed or reduced limits on existing cover; insurers are also

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concerned about what will happen when these protections end. Consequently, businesses seeking to protect themselves from client insolvency are increasingly unable to do so.

We have significant concerns about potential bankruptcies and seeking to ensure certainty in payments for contractors who carry high financial risk in the building and construction process. We strongly urge the Victorian Government to address this issue.

3.3.5 Suspend Payroll Tax to Augment Recovery After COVID-19

As payroll tax is essentially a tax on employment, we would like to see the Victorian Government suspend payroll tax for a period of at least six months.

This would reflect payroll tax relief that has been granted in other states as a measure to stimulate employment in the aftermath of the coronavirus-induced recession: for example, Western Australia has also cancelled payroll tax for six months. We note Victoria has reduced the rate of payroll tax for regional businesses, but we believe this should go further.

As payroll tax is a tax on employment and counterintuitive to generating new jobs, we believe this measure would greatly assist recovering businesses in our sector, and the broader economy, to provide employment opportunities for people who may have been displaced as a result of the current recession.

More generally, where adjustments to the ongoing payroll tax regime may be considered in future, NECA believes this should be done by reducing the rate of payroll tax rather than raising the threshold at which it applies, as the threshold creates “winners and losers” and encourages avoidance through the use of “independent contractor” arrangements.

Recommendations • Urgently reform the Australian Taxation and Regulatory Systems to reduce

red-tape, streamline and simplify systems to stimulate the economy and support jobs;

• Introduce a national occupational licensing regime; • Introduce Security of Payments for trade industries; • In accordance with the Murray Review Recommendation 85, a deemed

statutory trust model should apply to all parts of the contractual payment chain for construction projects over $1 million. The deemed statutory trust model outlined in the Collins Inquiry provides a suitable basis;

• In accordance with the Murray Review Recommendation 86, the Australian Government should take a lead role working with states, territories and key industry stakeholders towards the establishment of a nationally consistent

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deemed statutory trust model. The establishment and implementation of such a model should be accompanied by a program of industry-wide education and training;

• In the context of unfair contracts, amend the definition of an SME to 100 employees, as this would more accurately reflect the size of businesses engaged to work on larger construction projects across Australia;

• In the context of unfair contracts, the threshold for upfront prices payable on a building contract should be increased to $3 million for contracts of 12 months or less, and $9 million for contracts longer than 12 months;

• Stamp out non-conforming building products, and implement the recommendations from the Senate Economics Inquiry;

• Introduce a national Electrical Equipment Safety System for the electrotechnology industry;

• Continue support for Continuing Professional Development; • Outline additional funding arrangements for the CPD program moving forward,

to ensure that NECA can deliver learnings and training opportunities, in line with the program’s governance guidelines;

• Introduce new Victorian Government COVID-19 assistance including new, additional and sustainable manufacturing supplies and to incentivise onshore manufacturing to ensure supply chain certainty;

• Introduce a moratorium on Liquidated Damages Provisions; • Greater flexibility for the Extension of Time provisions; and • Extend temporary relief to trading insolvency provisions. • Suspend payroll tax for a minimum of six months to help stimulate employment

growth.

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4. Energising the Future NECA supports the operation of a national competitive training market comprising public and private RTOs, overseen by one national regulator. We recognise the future viability and success of Australia’s Vocational Education and Training (VET) system is a shared responsibility, which should be strongly influenced and informed by industry and supported by government. Our member feedback, and experience within the VET sector, suggests that the current standards and systems have not always led to the delivery of quality job-ready graduates with the skills required by the industry. This needs to change.

COVID-19 is redefining the future profile of the trades sector, compounding existing skills shortages. We assert that this presents an excellent opportunity to encourage young people into the industry, as well as reskilling prospective apprentices from other affected vocations. With the emergence of new technologies forecast, our trades will become ever more essential to daily life. It is critical the VET system is designed to attract and prepare apprentices with relevant skills and expertise, and that the existing workforce has the opportunity to re-skill to competitively operate in the labour market. We note from past experience that recessionary economic distortions tend to disproportionately affect young workers, who may be unable to fully regain a foothold in the labour market once a recession ends: thus, continued and increased government support for the apprenticeship trades sector would mitigate this and help insulate against long-term youth unemployment.

The JobKeeper package is set to cease in March 2021. This is premature with consideration to communities and businesses being able to effectively and independently restart. We have significant concerns that businesses will not be stable and resilient by this point in time; therefore, the JobKeeper package should be reviewed in late 2020 with the potential for these provisions to be extended depending on the conditions and needs of business. This is imperative for the attraction and retention of apprentices to our trades, and we highlight the benefit and importance of the federal government’s wage subsidies for apprentices. The opportunity also exists for the Victorian Government to introduce its own apprenticeship incentives to assist business and support the next generation of tradespeople.

The JobKeeper wage subsidy should continue to apply to manage the risks and ease pressure on employers and retain employees all impacted by COVID-19 – particularly apprentices, the next generation for our industry. We anticipate that absence of these arrangements would be devastating and will impact the current and future apprentices. We also strongly encourage that these wage subsidy arrangements to be extended to businesses of all sizes so as to allow fairness in the market, and ensure all apprentices are given an equal opportunity to retain their roles – COVID-19 has not excluded any areas of the market, and it is important that government arrangements do not create ‘winners’ and ‘losers.’

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With regard to how JobKeeper might apply in the electrical contracting (and construction) sector generally, we make the point that our industry is unique in that at the commencement of the COVID-19 pandemic, work pipelines were already locked in; as we have worked through those projects, however, new projects have not been approved at the usual rate as the focus of government at all levels has been on the pandemic. Consequently, our sector has not been affected anywhere near as badly as other industries in the early stages of the COVID recession; if new projects are not approved, however, our members will be unable to access JobKeeper even if the eventual lack of work reduces their turnover by 95%. In other words, truly adverse consequences of COVID-19 will affect our industry much later than it has others. For this reason, we advocate for some kind of similar support if a delayed downturn affects our sector as a result of this “lag effect.”

As a lead player in the training of future and current electrical and communications contractors through our GTOs and RTOs across Australia, NECA believes that:

• quality education, skills and training initiatives are critical for the development of the electrical trade;

• Government must ensure there are adequate opportunities, initiatives and funding to support a diverse workforce, and that the small business sector is incentivised as the major employer to the next generation of tradespeople;

• Government has a critical role to play in informing school students of their career pathways and opportunities, specifically opportunities found within the trades;

• initiatives are required to ensure a more gender and age diverse workforce; we specifically ask the government to consider funding for

o Indigenous pre/apprenticeship programs; o Female pre/apprenticeship programs; and o Qualification conversion and skills recognitions programs;

• promote the benefits of a career pathway into the electrotechnology industry.

4.1. Extend COVID-19 apprentice wage subsidies and new incentives for large business

A key ongoing challenge for our industry is a shortage of supply of skilled electrical and communications workers. This is evidenced through a reduction in the completion of electrical apprenticeships across Australia and the retirement of long-term and highly skilled workers, resulting in the loss of suitably qualified electricians at both ends of the sector.

COVID-19 has resulted in businesses being unable to retain and/or attract apprentices, in particular mature aged apprentices who may be interested from sectors impacted by COVID-19 e.g. hospitality and tourism, due to their substantially higher costs. Whilst this is

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the current trend, the medium and longer term projections suggest if we do not continue to attract and retain apprentices, this will significantly impact our industry and broader sector.

4.2. Support pre-Apprenticeship initiatives School-based apprenticeships are an important pathway for students and are a good source of apprenticeship applications for the industry and provide a way to screen potential applicants. Some of these courses, however, are too institutionally based and do not always lead to good vocational outcomes.

We consider that there is a need to reform the approach to pre-apprenticeships. Pre-apprenticeships should be encouraged where they meet employer and student needs, particularly where there is flexible timetabling. In some cases, it may be sufficient to use this option for Year 11 students to bridge the gap in academic learning required in off-the-job training.

Employers have only limited understanding of this option and its ability to supplement labour when off-the-job training is being undertaken by full-time apprentices. Attainment of acceptable minimum mathematics skills (at least to sound Year 10 level) is an ongoing problem with young applicants.

NECA has been examining the development of a national approach for pre-apprenticeships under the Electrical Innovative Delivery and Pathways Project, including how the provision of short, targeted, upfront pre-apprenticeship training can be used to ensure apprentices are more work ready, understand the basics of the industry and have hand skill familiarity.

4.3. Provide apprentice mentoring NECA Education and Careers’ high completion rates - at over 90% against an industry level of 50 to 60% - demonstrate the merits of mentoring apprentices and the success of our organisation. Mentoring allows the proactive management of the individual apprentice’s development, including:

• OH&S awareness and compliance, managing personal issues and discipline where necessary and work exposure;

• reviewing PPE (personal protective equipment); • reviewing toolkits; and • monitoring and discussing trade schoolwork.

Recommendations • Support pre-apprenticeship initiatives; and • Provide apprentice mentoring.

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